As noted earlier, the federal government and the states shared the costs and rule-making authority over the AFDC program, although states have exerted increasing influence over welfare policy and program design in recent years. An early sign of the shift of authority from the federal government to the states came in the increased use of legislative provisions allowing states to request waivers of specific federal program requirements to carry out welfare demonstration projects. Waiver applications from 44 states had been approved by the federal government by mid-1996.19 (See the Appendix to this journal issue for more details.)

The fundamental balance in the federal-state partnership changed with passage of legislation authorizing the Temporary Assistance for Needy Families (TANF) program in 1996, which ended the entitlement to AFDC and replaced it with federal block grants to states. Under this legislation, instead of matching state payments to all families enrolled in AFDC, the federal government provides an annual lump sum to each state, regardless of its number of AFDC recipients. The size of each state's block grant is based on recent federal spending for specific welfare programs in that state. Funding is expected to remain level through fiscal year 2002, although a small federal contingency fund may offer supplements to states that suffer economic downturns. States are not required to spend their own matching funds in order to receive federal TANF funds, although federal penalties may be imposed on states that significantly reduce their own welfare expenditures from current levels.20

A number of constraints accompany the use of federal funds: States must require adult recipients to work or do community service, and no family may receive federal TANF assistance for more than five years. States may exempt up to 20% of their caseloads from the time limit, and they can impose stricter time limits. States that reduce their welfare caseloads will be rewarded with bonus federal funds, and those that fail to move set percentages of recipients into employment (not education or job training) will be penalized. No federal funds can be used to provide assistance to immigrants or to teen parents who live independently.

Some of the more complex aspects of the new legislation concern the interface between the TANF cash assistance program and the other benefits that welfare recipients have typically received. States may offer child care assistance to parents participating in work activities, although such assistance is no longer guaranteed. States may not penalize parents with children under six who fail to work because they lack child care, although these families will still face the time limits on receipt of TANF assistance.21 Eligibility for Medicaid is not linked to TANF eligibility, as it was to AFDC, although states are required to provide Medicaid to families who meet the state's 1996 AFDC eligibility guidelines. Food stamps will continue to be provided by the federal government to those who meet nationwide income criteria, although significant funding cuts were made in the Food Stamp Program.20